New Jersey Governor Phil Murphy recently signed an executive order that created the Task Force on Employee Misclassification in order to ensure that employers are classifying and filing for their employees properly. Misclassification is illegal and is a growing problem in New Jersey, both intentional and unintentional. Employers who do it intentionally are attempting to reduce or avoid labor and worker’s compensation related costs. Employers often unintentionally misclassify their workers as well, which leaves these individuals without workplace protection, fringe benefits (i.e. health insurance) and unemployment and disability benefits in the event of termination.
New Jersey has an “ABC” test to determine the proper classification of workers for employers and employees to use. This test assumes that a worker should be classified as an employee unless the test proves otherwise.
The test is based on three parameters:
• Whether the worker has been and continues to have freedom to direct their own performance of their work
• Whether the work done is completed:
• Outside what the business typically offers in services
• Ex: A plumber’s services are typically outside of those offered by an accounting firm, even though a plumber may do repairs in an accounting firm.
• Offsite or at a different location besides the normal place of the company’s operations
• Whether the worker is normally working in an independent trade, job, profession, or business outside of the one that is up for classification evaluation.
If a worker falls into all three of these three parameters, they are an independent contractor rather than an employee. If a worker cannot apply their work to even one of these parameters, they are considered an employee rather than an independent contractor.
With this new task force in full swing, the Internal Revenue Service and New Jersey Department of Labor and Workforce Development have increased the amount of small and large business audits done and as a result, businesses found in violation of classification legislation have been assessed penalties, fines, and back taxes.
This new Task Force is comprised of at least 12 members and is charged with combatting employee misclassification by evaluating existing methods of misclassification enforcement, developing new and better practices of enforcement, providing recommendations on how to comply with the laws, creating educational programs for employers and employees alike about proper classification, and reviewing existing laws to create procedures on how to deal with misclassification.
With all of this new information about how problematic and potentially expensive misclassification can be, as employers and business owners, you should heed this signal from the State and reexamine whether your 1099 contractors are indeed independent contractors and not employees. Don’t risk the prospect of being audited and owing thousands of dollars in back taxes. We can evaluate whether your company is classifying workers correctly thereby meeting the criteria established by the State of New Jersey and Internal Revenue Service. Over the years, we at Mazur & Associates have become proficient in this area and have successfully resolved our clients’ issues with taxing authorities: Reach us at (732) 936-1230 and set up an appointment today!